if you are an Australian resident for taxation purposes, you may be entitled to a credit for the foreign tax you have paid, and

if you are an Australian company, you may also be entitled to a credit for foreign underlying tax paid by a CFC on your share of assessable, attributable income.

Section 1: Foreign tax credits available to all Australian residents

Partnerships

Partners can claim a credit for their share of foreign tax paid on foreign income derived through a partnership. The amount of foreign income and the credit for foreign tax paid should be included in each partner's return.

Trusts

Where an amount of trust income is included in the return of a beneficiary, that beneficiary may claim a credit for the foreign tax paid by the trust.

The trust's income must be divided into the appropriate classes of income. The beneficiary's share of the trust income must also be divided into the appropriate classes of income.

The trustee has to show in the trust tax return the amount of foreign income and attributed foreign income.

The trustee is also required to show in the trust tax return the sum of the foreign tax paid and deemed paid in respect of the part of the net income to which beneficiaries are presently entitled (and assessable) and the foreign tax credit allowable in respect of the part of the net income on which the trustee is assessable.

On the distribution statement, the trustee has to show the portion of foreign tax that relates to the share of foreign income to which each beneficiary is presently entitled (and assessable).

The trustee also has to show the amount of foreign income included in net income on which the trustee is assessable and the foreign tax credit allowable in respect of that income.

A credit is not available for foreign tax paid in respect of income that is attributed to a transferor as a result of the transferor trust measures. For details on the transferor trust measures, see chapter 2.

Unit trusts

The foreign income of a unit trust is treated in the same manner as foreign income of any other trust.

For which types of foreign tax is a credit allowable?

Creditable foreign taxes include:

foreign tax equivalent in nature to Australian income tax - for example, a tax on net income or capital gains

foreign withholding tax similar to Australian withholding tax on interest and dividends

You are not allowed a credit for penalties, fines, interest, and unitary or credit absorption taxes.

Credit for notional tax forgone by developing countries

Certain double taxation agreements with developing countries provide for 'tax sparing'. Tax sparing preserves taxation incentives which are provided by a treaty partner to promote economic development. If tax sparing applies to a tax incentive, you can claim a credit for tax forgone by a treaty partner under the incentive. The double taxation agreements list the taxes for which tax sparing is provided.

Foreign tax credit allowable for a dividend paid from income which has previously been attributed

Dividends derived by all Australian residents for tax purposes (including individuals) from profits that have been taxed on an accruals basis are non-assessable non-exempt income. A credit is available for foreign tax paid by the Australian resident on these dividends even though they are not assessable.

Credit for foreign taxes paid after your assessment

You are allowed a credit only for foreign tax which you have actually paid or which you are deemed to have paid. You will need to request that a determination of your foreign tax credit entitlement be made or amended if you wish to claim a credit for foreign tax paid after your original assessment. Your assessment may also need to be amended to gross up your foreign income for any additional foreign tax credit you claim.

For further information please see Taxation Ruling IT 2529- Income tax: foreign tax credit system - foreign tax credit determinations. Note that the three-year period for claiming a credit referred to in the ruling has since been extended to four years.

Refunds of foreign tax

You cannot claim a credit for foreign tax refunded to you or to another person. Nor can you claim a credit where any other benefit is provided as a result of the payment of the foreign tax.

Two types of benefits will not result in the denial of a tax credit:

a general benefit which arises as a result of the payment of foreign tax - a general benefit is a benefit not directly linked with the payment of foreign tax

a benefit which is a reduction of a tax liability.

A credit will therefore not be denied solely because a country provides an imputation credit, a rebate of tax or a foreign tax credit for the foreign tax.

Evidence of foreign tax paid

The following documents will be acceptable as evidence of payment of foreign tax:

a notice of assessment and receipt for the tax paid

a statement from a foreign tax authority setting out particulars normally recorded on a notice of assessment and receipt for payment

a certificate for deduction of withholding tax issued by the person who pays the interest, dividends or any other income that is subject to a deduction of foreign tax.

In all cases, retain the original documents because the Tax Office may need to see them at a later date.

If the documentary evidence is in a foreign language, you will need a translation of the documents.

For further information see Taxation Ruling IT 2527 - Income tax: foreign tax credit system -.procedures in relation to claims for foreign tax paid.

Working out your foreign tax credits

You must work out your foreign tax credit entitlement separately for each class of foreign income. This is called quarantining. Your foreign tax credit for each class cannot be more than the Australian tax applicable to that class of your taxable foreign income.

Note: The government announced in the May 2005 Budget that the requirement to quarantine foreign tax credits will be removed, with effect for credits arising in income years first commencing on or after the relevant legislation receives Royal Assent.

What are the classes of foreign income?

Foreign income is divided into four classes for the purpose of allowing a foreign tax credit:

Passive income includes dividends, interest, annuities, rental income, royalties, amounts received for the assignment of a patent, copyright, capital gains, passive commodity gains and amounts included in assessable income under the CFC, FIF or transferor trust measures.

Capital gains

An assessable gain or profit of a capital nature is deemed to be foreign income for working out a foreign tax credit if it is derived from a source in a foreign country. Capital gains are included in the 'passive' class of foreign income.

For further details on credits for foreign tax paid on capital gains, please see Taxation Ruling IT 2562 - Income tax: foreign tax credit system - interaction of foreign tax credit provisions with capital gains and capital losses provisions of part IIIA.

What is offshore banking income?

Offshore banking income includes:

interest, fees, commissions or similar income derived from offshore banking transfers

dividends paid by a company out of profits derived from offshore banking transfers.

What are lump sum payments from foreign non-complying superannuation funds?

These lump sum payments included in assessable income under section 27CAA are treated as a separate class of income.

What is other income?

Other income is income that does not belong to any of the other classes of income. For instance, it would include income from commercial activities, salary or wages and most pensions.

Working out the amount of assessable foreign income for creditable foreign taxes

Your assessable foreign income for each class is 'grossed up' by the amount of foreign tax credit you can claim for that class of income. A company must also include an amount equal to any credit allowable for foreign underlying tax.

Example 8Creditable foreign taxes

A company resident in New Zealand pays a dividend of $100 to an Australian resident individual. As New Zealand deducts $15 withholding tax, the taxpayer actually received $85. The taxpayer's assessable foreign income for that dividend will be $100 - that is, the amount of the dividend before the payment of withholding tax.

What deductions are allowable?

You may claim the following deductions for each class of assessable foreign income:

expenses directly related to that class of foreign income

other deductions relating to that class of foreign income

a share of the apportionable deductions - that is, deductions that cannot be related to a particular type of income - for example, gifts

unused quarantined foreign losses from prior years

prior year domestic losses, if you make an election to offset those losses against a class of foreign income

if your allowable deductions for the current year are more than your domestic source income, the amount by which those deductions are more than your domestic source income.

See appendix 2 of this guide and Taxation Ruling IT 2446 - Income tax: foreign tax credit system: allowable deductions referable to foreign income for more information on allowable deductions.

Conversion of foreign amounts

All foreign income, deductions and foreign tax paid must be expressed in Australian dollars, (unless a functional currency election is in effect). The following table shows how to convert certain amounts.

Type of foreign income

Convert foreign income to Australian dollars at*:

Foreign employment income, pensions and annuities

the exchange rate that applied at the time you were paid or had the income applied or dealt with on your behalf or as you directed (such as into a bank account), even if no amount was remitted to Australia.

Foreign business income, dividends, interest and other income

the exchange rate that applied at the earlier of when you received or derived the income (or, for statutory income, the earlier of when you received the income or were first required to include it in your assessable income)

Foreign capital gains

the exchange rate that applied at the time of the transaction or event for each transaction or event involving an amount of foreign currency (or the market value of property expressed in a foreign currency). For example, if an amount included in the cost base of an asset is expressed in foreign currency, convert that amount into Australian currency on the date that the expenditure was incurred. Convert capital proceeds on the date of the CGT event.

Foreign tax paid

the exchange rate that applied at the time the foreign tax was paid.

Foreign deductions (other than capital allowances)

the exchange rate applicable at the earlier of when the amount was paid or when it became deductible.

Depreciating assets

the cost of a depreciating asset is to be converted at the exchange rate that applied at the earlier of when you begin to hold the asset or satisfied your obligations for it (that is, when you paid for it). This converted cost is then used to calculate the capital allowance deductible.

At the time of publication, the tax law did not permit the use of average rates. However, there is a regulation-making power under which methods of conversion other than those set out above may be specified. For more information on converting foreign amounts to Australian dollars see the Tax Office fact sheet (Foreign exchange (forex): The general translation rule) available on our website.

Working out your Australian tax payable

The foreign tax credit you are allowed for each class of foreign income is limited to the Australian tax payable on that class of income. Therefore, you must first work out the Australian tax payable.

To do this, multiply your average rate of Australian tax by your adjusted net foreign income. Deduct any rebates which apply to that income - apart from a rebate under an Act fixing the rates of income tax or under an Act imposing income tax. Expressed as a formula, the calculation is as follows:

ATP = AR X ANFI

ATP

= Australian tax payable

AR

= average rate of Australian tax

ANFI

= adjusted net foreign income

How is the average rate of Australian tax worked out?

The average rate of Australian tax (AR) is worked out by dividing the gross tax on your taxable income less certain rebates by your taxable income. Expressed as a formula, the calculation is as follows:

For this calculation, deduct concessional, zone or overseas service rebates.

What is adjusted net foreign income?

Adjusted net foreign income (ANFI) is your net foreign income adjusted for apportionable deductions. Apportionable deductions are deductions of a concessional nature that do not relate directly to income producing activities - for example, gifts.

Net foreign income is your gross assessable foreign income less:

allowable deductions relating exclusively to your foreign income

any domestic loss carried forward that you have elected to use against your foreign income

deductions allowed as being appropriately related to your foreign income.

How is adjusted net foreign income determined?

Your adjusted net foreign income is determined as follows:

If your net foreign income exceeds the sum of your taxable income plus apportionable deductions, your adjusted net foreign income will equal your taxable income

If your net foreign income consists of two or more classes of income - that is, quarantining applies - and your combined net foreign income from all classes is more than the sum of your taxable income plus apportionable deductions, your ANFI for each class will equal your taxable income. ANFI is divided proportionately, as shown in example 9, into:

passive income

offshore banking income

lump sum payments assessable under section 27CAA, and

other income

In any other case, your adjusted net foreign income is your net foreign income multiplied by your taxable income divided by the total of your taxable income and apportionable deductions. Expressed as a formula, the calculation is as follows:

ANFI =

NFI x

TI TI + AD

ANFI

= adjusted net foreign income

NFI

= net foreign income of a class

TI

= taxable income

AD

= apportionable deductions

Example 9Working out adjusted net foreign income

An individual has:

$

Domestic source income

7,000

Allowable deductions from domestic source income

10,000

net passive foreign income

2,000

net other foreign income

5,000

apportionable deductions

100

Taxable income($7,000 - $10,000 + $2,000 + $5,000 - $100)

3,900

Taxable income plus apportionable deductions($3,900 + $100)

4,000

Net foreign income($2,000 + $5,000)

7,000

The net foreign income is greater than the taxable income plus apportionable deductions. Therefore, the adjusted net foreign income is taken to equal taxable income. As there are two classes of foreign income, it is necessary to apportion the adjusted net foreign income into the relevant classes - that is, passive income and other income.

The taxpayer's passive income is 2/7 and other income 5/7 of the combined net foreign income. The adjusted net foreign income for each class is as follows:

$

ANFI - passive income(2/7 of the taxable income of $3,900)

1,114

ANFI - other income(5/7 of the taxable income of $3,900)

2,786

Example 10Working out adjusted net foreign income

An individual has:

$

Domestic income

7,000

passive foreign income

2,000

other foreign income

5,000

apportionable deductions

100

First work out ANFI for passive income:

The taxpayer's taxable income($7,000 + $2,000 + $5,000 - $100)

13,900

ANFI - passive income

2,000 x

13,900 (13,900+100)

1,986

then work out ANFI for other income:

ANFI - other income

5,000 x

13,900 (13,900+100)

4,964

Working out the credit

Your foreign tax credit entitlement for a class of foreign income is the lesser of:

the creditable foreign tax which you have paid on that class of income, and

the Australian tax payable on that class of income, worked out using the above procedure.

The following example shows the steps to use to work out your foreign tax credit.

As the Australian tax payable is less than the foreign tax, the foreign tax credit is

197.57

Foreign tax paid on other income

1,000

Australian tax payable

536.45

As the foreign tax paid is more than the Australian tax payable, the foreign tax credit is limited to the extent of the Australian tax payable on the foreign income - that is, $536.45.

The excess foreign tax credit can be carried forward for offset in later years against Australian tax payable on the same class of foreign income.

Carry forward of excess foreign tax credits

You will have an excess foreign tax credit for an income year if the amount of foreign tax you have paid is more than the Australian tax payable on that class of foreign income.

You may carry forward an excess foreign tax credit that arises in an income year for a class of foreign income for five years immediately following that income year. Your excess credit for a class of income may only be used where there is a credit shortfall for the same class of income in a later year. A credit shortfall will arise where the credit allowed for a class of foreign income for an income year is less than the Australian tax payable on that class of foreign income.

If you have incurred a loss for a class of foreign income, you cannot claim a tax credit in that year because the Australian tax payable on that class of income is nil. You may, however, carry forward the foreign tax credit relating to that class of income to subsequent years.

Section 2: Credits available only to Australian resident companies

Australian resident companies are entitled to a foreign tax credit as worked out in section 1. In addition, in some circumstances a company - other than a company in the capacity of trustee - may be:

entitled to a credit for tax paid by a CFC on amounts attributed to the Australian company

not assessable on foreign non-portfolio dividends- see part 1 of this chapter, or

not assessable on foreign income derived through a foreign branch - see part 2 of this chapter.

Credits available to resident companies for direct and underlying tax

An Australian resident company which receives a dividend from a related company may be entitled to a credit for the direct foreign tax - for example, withholding tax - on the dividend received.

This credit will generally be available only if the dividend is included in assessable income. The only exception is where a dividend is received from a related foreign company and is treated as paid out of income previously attributed to the resident company under the accruals tax system. A tax credit can be claimed for both the direct foreign tax and underlying tax on these non-assessable non-exempt dividends.

An Australian resident company that is related to a CFC may also be entitled to a foreign tax credit in relation to the assessable, attributable income.

Related foreign companies

Under section 160AFB, an Australian company is treated as related to any number of linked foreign companies provided that:

each company in the chain - starting with the Australian company - has at least a 10% voting interest in the company in the tier below it, and

the Australian company has a direct or indirect interest of at least 5% in the voting shares of each foreign company that is a member of the chain.

A chain of related companies cannot include a trust or partnership - that is, the chain will be broken by the interposition of a trust or partnership.

Example 12Related foreign companies

Australian company A has a 50% voting interest in foreign company B, which in turn has a 10% voting interest in foreign company C. Both B and C will be treated as related to A.

Step 1

Are the companies members of the same group?

Yes - each company in the chain, starting with the Australian company, has at least a 10% voting interest in the company in the tier below it.

Step 2

Does company A have a 5% or more direct or indirect voting interest?

Yes - company A has a voting interest of 50% (50% x 100%) in company B and a voting interest of 5% (50% x 10%) in company C.

Step 3

Are the companies related?

Yes - both tests are satisfied for both companies B and C. Therefore, they are both related to company A.

Credits available to resident companies for attributed income

Working out the foreign tax credit when income is attributed

If a company is related to a CFC at the end of the CFC's statutory accounting period and the assessable income of the company includes a share of the attributable income of the CFC - see chapter 1 - the company is allowed a credit for an amount of tax equal to its attribution percentage of the CFC's notional allowable deductions for taxes paid.

A CFC can claim a notional deduction for foreign or Australian tax paid by the CFC on amounts included in the CFC's notional assessable income.

Example 13Foreign tax credit for attributed income

An Australian resident company AustCo has a 60% interest in a CFC, ForCo, a resident of an unlisted country

ForCo

Profits from a foreign branch (not attributable income)

$2,000

Tax paid in the foreign country on the foreign branch income

$600

Income derived in an unlisted country (attributable income)

$10,000

Tax paid in the unlisted country on all income (including foreign branch income)

$1,200

AustCo is deemed to have paid the following amount of tax on the attributed income:

Attribution percentage 60%

Tax paid on attributed income(10,000/12,000) x 1,200

$1,000

Tax deemed paid by AustCo(1,000/60) x 100

$600

AustCo must gross up its assessable foreign income by this amount. AustCo can claim a foreign tax credit for $600.

Credits where dividends are deemed to have been paid to an Australian resident taxpayer

If a benefit provided by a CFC to a resident taxpayer is deemed to be a dividend paid to that taxpayer under section 47A, credit for foreign tax paid will be allowed only if:

the amount of the deemed dividend is included in the taxpayer's assessable income in their return lodged in the year of the distribution, or would be so included apart from section 23AI, or

the taxpayer notifies the Tax Office, in writing, within 12 months after the end of the income year in which the benefit was provided.

Credits where income is attributed due to a change in residence of a CFC

A resident company is allowed a credit for foreign tax paid by a CFC if an amount of income is attributed to it because the CFC changed its residence from an unlisted country to a listed country or to Australia. However, the credit is available only if the resident company is related to the CFC at the time of the change of residence - see section 160AFCB. The company is allowed a credit for the foreign tax and the Australian tax paid by the CFC on the attributed amount.

Working out a foreign tax credit when a dividend is paid from income that was previously attributed to an Australian resident company

A dividend paid out of income previously attributed to an Australian resident is non-assessable non-exempt income - see part 1 of this chapter. In addition, an Australian resident company is allowed a credit for foreign tax - including foreign underlying tax - paid on a non-portfolio dividend from attributed income. The credit for the underlying tax is limited to the amount by which the section 23AI part of the dividend would have been greater if no foreign tax had been paid.

The formula to work out the foreign tax for which a credit is due when a dividend is received from previously attributed income is:

FTP = (EP x DT) + (AEP x UT) - AT

FTP

foreign tax paid on previously attributed income for which a credit is now allowable

EP

percentage of the payment which is non-assessable non-exempt because the income has been previously attributed

DT

amount of foreign tax which the taxpayer is taken to have paid, and to have been personally liable for, in relation to the attribution account payment

AEP

percentage that would be EP if the attribution account payment were reduced by any part of the payment that is non-assessable non-exempt income under section 23AJ

UT

where the taxpayer is a company and the attribution account payment is a non-portfolio dividend, UT equals the amount by which the section 23AI non-assessable non-exempt part would have been greater if an attribution account entity had not paid foreign tax on its profits

AT

amount of the attributed tax account debit arising from the payment of the dividend that is equal to or less than AEP x UT

Example 14Credit for foreign taxes on a dividend paid from profits attributed to an Australian company

Austco has a wholly owned subsidiary, Subco, in an unlisted country. Subco had distributable profits of $10,000 on which it paid foreign tax of $1,000. These profits have previously been attributed to Austco.

On 1 August 2004, Subco paid a dividend of $10,000 to Austco. The unlisted country levied dividend withholding tax at a rate of 10%.

The dividend received by Austco is non-assessable non-exempt income because it was paid from previously attributed income. At the attribution stage, Austco would have received a credit of $1,000 for foreign tax paid.

Even though the dividend is not included in Austco's assessable income, a foreign tax credit is available for withholding tax and underlying tax relating to the dividend. This is because the profits out of which the dividend was paid were attributed to Austco and taxed in Australia.

The method by which this credit is granted is as follows:

Work out the foreign tax credit for dividend withholding tax and for underlying tax on the dividend as though the dividend was paid from income that had not been attributed to Austco.

The formula for working out the foreign tax credit Austco can claim is as follows:

FTP = (EP x DT) + (AEP x UT) - AT

This formula can be broken down as follows:

EP x DT

= percentage of the dividend paid from previously attributed income x tax paid on the dividend

= tax for which a credit was allowed when the income of the unlisted country CFC was attributed to Austco

= $1,000

FTP

= foreign tax paid on previously attributed income for which a credit is now allowable

= $1,000 + $1,000 - $1,000

= $1,000

In this example, when the income of $10,000 was attributed to Austco and a credit was given for $1,000, Austco would have opened accounts as follows:

Attribution account for Subco

Attributed tax account for Subco

Attributed income

$10,000

Tax credited

$1,000

When the dividend is received, Austco will debit the attribution account $10,000 and treat the dividend as non-assessable non-exempt income. It will also debit $1,000 to the attributed tax account.

This debit is the amount referred to as AT. Attributed tax accounts are dealt with below.

Evidence of underlying tax paid

Your company should retain full particulars of the material on which its underlying tax credit has been worked out. Obtain a statement from the company which paid the dividend, certifying the amount of tax paid on the distributable profits out of which the dividend was paid. When underlying tax paid is traced down a chain of related foreign companies, such details will be required for each company in the chain.

Attribution accounts relevant to foreign tax credits for companies

Attributed tax accounts

What is the purpose of attributed tax accounts?

A resident company can claim a foreign tax credit for dividend withholding tax and certain underlying taxes on a non-assessable non-exempt dividend paid from previously attributed profits.

The credit is initially worked out on the basis that no foreign tax credit was allowed at the time the profits were attributable. The foreign tax credit worked out in this way is then reduced by the credit allowed at the time the attributable income of the CFC was included in the assessable income of the resident company. The attributed tax accounts trace the foreign tax credit allowed at the attribution stage so that this reduction can be made.

Who should maintain attributed tax accounts?

Attributed tax accounts are to be maintained by a resident company to which the attributable income of a related foreign company has been attributed under the CFC measures. Other taxpayers need not maintain these accounts.

Attributed tax account credits

An attributed tax account credit can arise in relation to a CFC where an amount is attributed under any of the following sections:

section 160AFCA where the attribution of income of the CFC arises under section 456, or

section 160AFCB where the attribution of income of the CFC on a change of residence arises under section 457.

Each time a credit is made to an attribution account - as explained in part 1 of this chapter - a corresponding credit must be made to an attributed tax account for the entity for which the attribution account is operated.

Attributed tax account debits

An attributed tax account debit must be made each time the attribution account entity pays a dividend. The attributed tax account debit is worked out using the following formula.

Attributed tax account debit

=

attribution debit attribution surplus

x

attributed tax account surplus

In order to claim a credit for foreign tax paid on income that was previously attributed, the amount of attributed tax account debit must be verifiable. The attributed tax accounts for each of the relevant entities in respect of the taxpayer claiming the credit must be available or a credit will not be allowed.

Forco1 is a resident of an unlisted country and is a wholly owned subsidiary of Ausco. Forco1 derived income of $16,500 from sources in its country of residence, all of which is attributed to Ausco, and pays foreign tax of $1,500.

Forco1 has distributable profits of $15,000 ($16,500 - $1,500).

It pays a dividend of $10,000 to Ausco in the following year, from which withholding tax of $1,500 was deducted - the net dividend is therefore $8,500.

The dividend Ausco received is non-assessable non-exempt income. Ausco is also entitled to a credit for foreign tax paid on the income which was previously attributed. The credit is reduced, however, to the extent a credit for foreign tax was allowed when the income was attributed to Ausco. The non-assessable non-exempt income is not included in working out the Australian tax payable on the foreign income and thus does not increase Ausco's foreign tax credit limit.

The credit is worked out as follows:

FTP = (EP x DT) + (AEP x UT) - AT

FTP

foreign tax paid on previously attributed income for which a credit is now allowable

EP

percentage of the payment which is non-assessable non-exempt income because the income has been previously attributed. In this example EP is 100% as the dividend is paid from previously attributed income.

DT

amount of foreign tax which the taxpayer is taken to have paid, and to have been personally liable for, in relation to the attribution account payment - in this example, $1,500 withholding tax.

AEP

percentage that would be EP if the attribution account payment were reduced by any amount of that payment which is non-assessable non-exempt income under section 23AJ.

amount of the attributed tax account debit for the tax credit previously allowed on the attributed income that is equal to or less than AEP x UT. The attributed tax account debit is equal to

Attribution debit attribution surplus

X

attributed tax account surplus

($10,000/$15,000) x $1,500

$1,000

Note: When $15,000 income was attributed to Ausco, Ausco would have credited an attribution account for Forco1 with $15,000. It would also have credited $1,500 tax to the attributed tax account for Forco1 - that is, tax for which a credit was allowed at the attributed stage. When the dividend was paid by Forco, this would have remained as an attribution surplus. The dividend of $10,000 is an attribution account payment.

FTP

$1,500 + $1,000 - $1,000

$1,500

Transfer of excess foreign tax credits

A resident company that is a member of a company group may transfer an excess credit to another member of the group if:

there is 100% common ownership within the group

there is a shortfall of foreign tax credits in a class of income for the company receiving the transfer

the shortfall is for income of the same class as that for which there is an excess foreign tax credit in the company transferring the credit

both companies retain a record of the transfer showing the credit transferred.

The transfer of an excess credit may include credit carried forward from five previous years as well as the current year. The transfer operates only for the following two classes of income:

passive income

other income - excluding offshore banking income.

A company can transfer only an amount equal to the credit shortfall for that class of income - that is, the transferee cannot carry forward the transferred amount.

Note: The grouping provisions for wholly owned groups were removed as part of the introduction of the consolidations tax regime. From July 1 2003 unconsolidated wholly owned groups are generally no longer able to transfer excess foreign tax credits between entities in the group.

Carry forward of foreign losses by companies

An overall foreign loss for a class of assessable foreign income may be carried forward indefinitely and used to reduce a future year's assessable foreign income for that class.

Losses incurred by a company before the 1990 income year can be carried forward only for seven years and are therefore no longer available.

Our commitment to you

We are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations.

If you follow our information and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take.

Some of the information on this website applies to a specific financial year. This is clearly marked. Make sure you have the information for the right year before making decisions based on that information.

If you feel that our information does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice.